Weekly Outlook - US Downgrade Threats and Italy Debt Contagion

By IBT Staff Reporter On 07/19/11 AT 3:15 AM

Last week's currency trading review

The Dollar finished mixed in a heavy news week with lots of intraday volatility. Negative watch from Moody's and S&P on the US AAA Rating left traders unsure what to do in risk off trade with the clear winner the alternative safe havens of Gold, Yen and Swiss Franc. Bernanke helped support the markets with talk of QE3 if needed which allowed stocks to finish well off lows but also inspired Gold to break record highs. The Euro was under heavy selling pressure on Monday and Tuesday with spreads on Italian Bonds widening and fears of default in Greece jumping to other European countries igniting a panic. The Euro stabilized and rebounded on the US Downgrade threats and QE3 talk. The release of the European Bank stress tests turned out to be a non event with 9 failing but not major damage to sentiment. The EUR/USD is up -0.77% currently at 1.4150, after opening the week at 1.4259.

The Japanese Yen broke below Y80 on heavy EUR/JPY selling which crashed to BOJ intervention levels near Y110 on the back of the Italian debt scare. The USD/JPY is now threatening to continue falling with the market choosing the Japanese currency as a safe place to avoid US and European debt issues. The BOJ held at 0.1% as forecast and the central bank was more upbeat on growth going forward. The USD/JPY is down -1.93% currently at 79.13, after opening at 80.66. The GBP bucked the trend of the rest of the market gaining on heavy EUR/GBP unwinding which had built up large long positions in recent months on the weak UK outlook. Cable broke below 1.6000 but this proved temporary with the QE3 fueled risk rally seeing a close higher and was one of the best performing currencies in the market.The GBP/USD is up +0.46% currently at 1.6123 after opening at 1.6049. The AUD was under pressure in the risk off and uncertain environment with the currency finishing down more than the Euro and AUD/JPY in particular sold hard through key support at Y85. Hurting the sentiment is tempering views of future RBA rate hikes this year and concerns if a major issue develops in the Eurozone then a sharp liquidation like 2008 is possible again although this time from a much higher level. The AUD/USD is down -1.02% currently at 1.0639 after opening at 1.0748.

The Forex Trading Economic Data Ahead Preview

In the States; On Monday, TICS long term Purchases forecast at 48.4 bn. vs. 30.6bn previously. On Tuesday, June Housing Starts forecast at 0.58m vs. 0.56m previously. On Thursday, June Existing Home Sales forecast at 4.93mil vs. 4.81mil previously. Also, Weekly Jobless Claims forecast at 408k vs. 405k previously. Also Fed Chief Bernanke speaks. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone; On Tuesday, July German ZEW forecast at -11.8 vs. -9.0. June German PPI forecast at 0.1% vs. 0.0% previously. On Thursday, EU Economic Summit. Friday, July German IFO Business Climate forecast at 113.7 vs. 114.5 previously. In the UK, On Wednesday, MPC Meeting Minutes forecast unchanged at 2-0-7. On Thursday, June Retail Sales forecast at 0.5% vs. -1.4%. We will provide our previews and reviews of these data releases in the daily summary.

In Japan; On Thursday, June Trade Balance forecast at -0.25T vs. -0.47T previously. In Australia; On Tuesday, RBA Meeting Minutes released. On Friday, Q2 Import Prices forecast at -1.0% vs. 1.4% previously.We will provide our previews and reviews of these data releases in the daily summary.

TECHNICAL COMMENTARY

Currency

Sup 2

Sup 1

Spot

Res 1

Res 2

EUR/USD

1.3837

1.3951

1.4065

1.4295

1.4375

USD/JPY

76.25

78.00

79.00

80.38

80.83

GBP/USD

1.5781

1.5906

1.6100

1.6254

1.6300

AUD/USD

1.0520

1.0580

1.0600

1.0802

1.0889

XAU/USD

1564.00

1572

1595

1600

1628

OIL/USD

92.50

95.00

97.20

98.00

99.00

Euro - 1.4065

Initial support at 1.3951 (Jul 13 low) followed by 1.3837 (Jul 13 low). Initial resistance is now located at 1.4295 (61.8% retrace of 1.4578-1.3837) followed by 1.4375 (Jul 7 high)

Yen - 79.00

Initial support is located at 78.00 (Big Figure support) followed by 76.25 (Mar 17 low). Initial resistance is now at 80.38 (Jul 12 high) followed by 80.83 (Jul 11 high).

Pound - 1.6100

Initial support at 1.5906 (Jul 13 low) followed by 1.5781 (Jul 12 low). Initial resistance is now at 1.6254 (61.8% retrace of 1.6547-1.5781) followed by 1.6300 (Big Figure).

Australian Dollar - 1.0600

Initial support at 1.0580 (Jul 13 low) followed by the 1.0520 (Jun 29 low). Initial resistance is now at 1.0802 (Jul 14 low) followed by 1.0889 (May 11 high).

Gold - 1595

Initial support at 1572 (Jul 14 low) followed by 1564 (Jul 13 low). Initial resistance is now at 1600 (Key Resistance) followed by 1628 (1462.45 plus 0.618 of 1577.57-1308.25).

Oil - 97.20

Initial support at 95.00 (Intraday Support) followed by 92.50 (Intraday Support). Initial resistance is now at 98.00 (Intraday resistance) followed by 99.00 (Intraday Resistance).